An company is considering opening a new retail location. To help them decide where to locate, they use OLS to estimate t

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An Company Is Considering Opening A New Retail Location To Help Them Decide Where To Locate They Use Ols To Estimate T 1 (53.1 KiB) Viewed 65 times

An company is considering opening a new retail location. To help them decide where to locate, they use OLS to estimate the following model of store profits: y = Bo + B121 + B212 + B31112 + Burk+u (2) We will assume MLR.1 to MLR.4 are satisfied, and: y=In( anmal profits in millions of dollars ) • 11 = an indicator variable, taking a value of 1 if the store stays open late and 0 otherwise • I2 = the store's distance from headquarters, in kilometers The company estimates: Bo = 6 B 0.2 B2 0.4 -0.2 BA -0.1 (a) (points: 5) Suppose a store is located 10 km from headquarters, and is not open late. By what percentage do you expect profits would change if they do open late? (Note: do not use an approximation here, because this is a large difference.) (b) (points: 5) Suppose the company wants a store that does open late. They are consid- ering placing that store 8 km from headquarters. By what percentage do you expect profits would change if, instead, they place it 1 meter further away? (Note: do use an approximation here, because this is a small difference. You are being asked about 1 meter further away, not 1 km.)